efficient market hypothesis (idea)

A few misconceptions here: the efficient market hypothesis does
*not* mean that the market will fairly or correctly value a stock,
nor does it imply that sharp, discontinuous movements will not occur
as investor sentiment changes. It is simply an equilibrium argument
about the current traded value, ie:

If information existed that investors agreed should give the
company a higher or lower valuation, it would naturally be exploited
by timely buying or selling, which would drive the price toward a new
equilibrium value.

Such trading will continue until all new information is
figured into the stock price.

Hence, the market price reflects all (public) information about the
stock

That's it. This is basically tautological given its assumptions:
that investors will preferentially buy or sell based on positive or
negative news and prospects, and that there is "perfect information"
(that is, information is disclosed or evident to all investors
more-or-less simultaneously) in the marketplace.

EMH is a pretty weak theory as theories go because it is almost
completely equivalent to its assumptions. So you shouldn't try to
use it for much. It is wrong, in particular, to use the EMH to
conclude that a stock will always be fairly valued, or that its
value will not change markedly over time even when no new information
about the stock itself comes to light. This is because lots of other
factors influence equity prices: the current levels of interest and exchange rates, liquidity preference, foreign
trade and balance-of-payments, investor
confidence/preference/exuberance, money
flowing in and out of mutual funds, etc.

You could of course consider all of these as market factors that are
part of the broader panorama of "information" the theory is talking
about, but then you would be back where you started: at a theory that
basically begs the question of information. If investors buy or
sell the stock, for whatever reason, you can conclude that it is a
reflection of new information in whatever form, and therefore the
theory works. But you haven't learned anything useful.

As weak as it is, EMH does succeed rather well in demonstrating that
technical analysis of asset prices is in principle not a very good
idea; in fact this is part of why EMH was formulated, as Blackthorn
correctly points out. That is, if there really were information about
the future performance of an asset in the history of its price then
investors would immediately take advantage of it, causing the price
change and negating the effect of the information. Technical analysts
rebut this argument by claiming essentially that only a Highly Trained
Technical Analyst can perform such analysis, and therefore the
information is not public to the investing community and EMH does
not apply. You can tune in to CNBC during the trading day and watch
them give their analysis and a defense of it along with about a
million-or-so other investors; I leave it as an exercise to the reader
to spot the irony in this.

Finally, a comment about alex.tan's point that people make (or lose)
money trading in the market: of course they do. This is why
people invest in the first place. If there were no tradeoff of risk
vs. reward, then there would be no point in investing. In short-term
trading (holding the asset minutes, hours or days) the volatility in
the asset price that investors trade against is a measure of the lag,
market timing and asynchronous dispersal of information in the
marketplace. In the long term (months or years) the change reflects
more fundamental trends in the business
prospects of the company, which have a lot of uncertainty surrounding
them. The fact that money can be made this way in no way disproves
EMH: in the short-term case, it simply means that investors can take
advantage of short-term swings in the price as a stock settles to a
new information equilibrium, and in the long term case it say that
investors are rewarded for investing their money. Nothing is surprising
about this.